Performance appraisals are a key moment in the annual cycle for employees, often filled with anticipation and anxiety. This process, while crucial for employee development, is notorious for being time-consuming and resource-intensive. Managers, who are tasked with evaluating performance alongside their other duties, often struggle to provide meaningful feedback and guidance.
Enter artificial intelligence (AI), which is not only revolutionizing job roles and service delivery but is poised to transform how employee performance is assessed and rewarded. This shift is expected to begin at the junior-most levels of the workforce, as AI’s invisible yet significant role in reshaping appraisal frameworks and productivity benchmarks becomes a valued skill within organizations.
Shantanu Rooj, founder and CEO of TeamLease Edtech, asserts that we are still in the nascent stages of exploring AI’s impact on appraisals. AI retains a novelty factor in many organizations and is largely in the experimental phase. “Companies are still determining which large language model (LLM) to adopt—OpenAI, Gemini, or a DeepMind model. There is still significant uncertainty about the best path forward,” Rooj explains.
The potential for AI to influence appraisals will become clear once established processes and effective use cases are identified. Rooj suggests that evaluating individuals based on their AI literacy and proficiency will allow for a fair assessment of pay differences, as the gap between those skilled in AI and those who are not will become more pronounced. However, as of now, this stage has not been reached.
“Currently, AI is not impacting appraisals. It’s impacting new hires. A year from now, in the next appraisals, we’d be talking about its real impact,” Rooj observes. By then, appraisal systems would also mature to incorporate a balance of digital literacy, including AI skills, alongside cognitive and soft skills, curiosity, teamwork, and collaboration—traits that differentiate a human from a robot. Without these, an individual’s ability to effectively use AI tools will lag.
Rooj emphasizes the importance of becoming AI literate and exploring new tools to boost productivity. For example, generative AI tools can enable a UI/UX designer to create complete interfaces rapidly, allowing one designer to perform the work of many. “We should view AI as a productivity enhancer, as organizations will increasingly value efficiency,” he notes.
Expectations for freshers entering the job market today are significantly higher than for experienced professionals. Freshers, particularly Gen Z, are digitally native, having grown up with technology such as laptops, smartphones, and platforms like YouTube. Consequently, their proficiency with digital tools and AI is expected to be strong.
Digital literacy has become a critical component for job seekers, with soft skills increasingly prioritized over hard skills. While AI offers numerous advantages for HR teams in measuring performance metrics, there are concerns regarding data privacy and bias. Some AI platforms may overlook important metrics, whether cultural or technical, leading to inequalities.
HR teams handle sensitive information, making it essential to safeguard employee data. A study by Traliant in 2024, which surveyed 500 HR professionals, revealed that 63% prioritized data privacy and security as their primary concern with AI, followed by compliance with data protection laws at 52%.
Bias in AI systems is another significant issue. Algorithms trained on historical data may perpetuate or heighten existing inequities, challenging HR in areas such as recruitment, promotions, and performance assessments, where equity is vital.
In the BFSI sector, AI adoption is anticipated to be swift due to the industry’s heavy reliance on data. Concepts like big data, blockchain, machine learning, and AI for predictions are particularly relevant in this field. Soon, a foundational level of AI literacy will be expected from employees, much like how becoming a chartered accountant is a basic requirement in certain professions.
Effective use of AI tools will also be crucial. While two individuals may be trained on the same software, their creativity and productivity can vary significantly. Post-COVID, organizations recognize that both productivity and resilience are essential, and AI will enhance these qualities, influencing future performance appraisals.
Education and skills will become increasingly important in the future. The National Digital Communications Policy (NDCP) effectively integrates skill-building with formal education through initiatives like the work-linked degree program. In this program, students complete part of their degree on campus, some online, and gain practical experience at their employer’s site, earning a stipend to “earn while they learn”.
The future of education is likely to be hybrid and outcome-driven, moving away from traditional models. Many experiments are underway, and some are bound to succeed.
Note: This article is inspired by content from https://analyticsindiamag.com/ai-features/will-ai-affect-your-appraisal-this-financial-year/. It has been rephrased for originality. Images are credited to the original source.